Musgrave Minerals: Starlight Continues To Shine

Summary

• Musgrave Minerals is up over 150% year-to-date after uncovering one of the most significant discoveries to date in the junior gold sector.
• The company holds a significant land package in the prolific Murchison province of Western Australia and is in close proximity to two producers with equity stakes in the company.
• While the company's BOD deposit was pumping out solid intercepts to date, the most recent drill hole is a bonanza-grade near surface hit that has put Musgrave on the map.
• Based on the recent drill results out of Starlight, I believe the company could become a potential takeover target, and it's a name investors should keep a close eye on.

It's been an exceptional start to the year so far for the Australian Gold Miners, with both Silver Lake Resources (OTCPK:SVLKF) and Evolution Mining (OTCPK:CAHPF) significantly outperforming the Gold Miners Index (GDX). Unlike miners in Canada and Mexico that lost a month or more of production from COVID-19 related closures, most Australian producers beat guidance, with Australia seeing barely any infections. One gold name on the Australian Exchange [ASX] that's outperformed the whole group is Musgrave Minerals, up 160% year-to-date after building on a massive discovery at its Cue Project. The bonanza-grade hole released this week has the company contending for the gold discovery of the year in the junior sector, with multi-million-ounce resource potential at the company's Cue Project. Based on recent drill results and a strong technical picture for Musgrave, I believe any 25% corrections are likely to be buying opportunities.

(Source: TradingView.com)

Musgrave Minerals has been quietly delineating its Cue Project under the radar the past year, and drill results to-date have been exceptional, warranting a watchful eye on the stock. The most recent drill hole, however, was one of the best intersections reported this year in the sector, with 20-MORC-033 intersecting 12 meters of 112.9 grams per tonne gold. This hole alone catapulted the stock up 70% this week despite a sluggish performance for the metal, and it has pushed Musgrave onto the top-10 list for strongest performers year-to-date in the sector. Let's take a closer look at the company and its flagship Cue Project below:

(Source: Company Presentation)

(Source: Company Presentation)

Musgrave Minerals is an ASX-listed exploration company, and its primary focus is its Cue Project, located in the Murchinson Province of Western Australia. In what looks to be one of Silver Lake's rare missteps, Musgrave gained 100% control of the project in 2017 following a previous joint venture with Silver Lake. In Silver Lake's defense, the project held less than 500,000 ounces of gold when Musgrave took full control of it, and that resource has since expanded to 613,000 ounces of gold following the resource estimate at the northern Lena Zone in Q1. However, it's the new Starlight link-lode at the Break of Day Zone that has produced the most fruitful intercepts to date, with several multi-meter intercepts of 10+ grams per tonne gold reported in the past year. These incredible intersections have confirmed the high-grade nature of the current 280,000-ounce resource at Break of Day and are notably all located outside of the currently defined resource. Therefore, there is massive resource expansion potential here, and these resources are likely to come in at similar or higher grades to the current 199,000-ounce resource at 7.15 grams per tonne gold at Break of Day. A few of the highlights hole from Break of Day in the past 12 months are as follows:

• Hole 19-MORC-037: 45 meters at 11.8 grams per tonne gold
• Hole 20-MORC-001: 3 meters at 118.4 grams per tonne gold
• Hole 20-MORC-004: 18 meters at 3.0 grams per tonne gold
• Hole 20-MORC-013: 42 meters at 5.6 grams per tonne gold
• Hole 20-MORC-018: 42 meters at 6.8 grams per tonne gold
• Hole 20-MORC-015: 55 meters at 2.8 grams per tonne gold
• Hole 20-MORC-033: 12 meters at 112.9 grams per tonne gold
• Hole-20-MORC-032: 48 meters at 4.4 grams per tonne gold

While the above intercepts are outstanding with a mix of thick high-grade intercepts and more narrow high-grade intervals, the true standout is Hole 33, as 12 meters of 112.9 grams per tonne gold is a world-class intercept. The grades encountered in this hole are similar to some of the hits we saw coming out of the Swan Zone at Fosterville in its prime, like 13.8 meters of 138 grams per tonne gold in drill hole UDH-2533 reported in 2018. The difference is that Fosterville is an underground mine, several hundred meters below the surface, and the bulk of Musgrave's drilling at Starlight to date has been within 200 meters of surface, suggesting that a good chunk of it may be amenable to open-pit mining.

(Source: Company Presentation)

If we take a closer look at the long section below, we can see that drilling has currently focused on a roughly 120-meter long strike and down to depths of approximately 200 meters, with the deposit open down-dip. Based on the current dimensions in this area and assuming it doesn't continue down-dip, it's looking like we already have the potential for a 150,000-ounce resource at Starlight at above 5.50 grams per tonne gold. Assuming this mineralization can be traced further along strike and at depth, a 300,000-ounce plus high-grade resource would not be out of the question. While it's early to speculate on what lies here with less than 100 drill holes plugged into this new area, the initial results are quite encouraging, especially considering that the company has been hitting gold in almost every hole drilled to date.

(Source: Company Presentation)

While the potential for merely a 1 million-ounce resource at Musgrave's 100% owned Southern Area may not seem that exciting, it's essential to put this area in perspective in terms of the company's total land package, with other prospective targets outlined to the north. Musgrave Mineral's land package sits on a 28-kilometer long prospective corridor that sits 30 kilometers north of Ramelius Resources' (OTCPK:RMLRF) Mt. Magnet Mine, and roughly 50 kilometers southwest of Westgold's (OTCPK:WTGRF) Tuckabianna Mill. Therefore, not only has Musgrave tied up a significant land package with a 20-kilometer plus gold corridor but it has also accomplished this in one of the most well-endowed gold regions in Australia, with several million-ounce resources surrounding them. If we zoom in further on Musgrave's tenements, it's worth discussing the company's other project, Lake Austin North, where the company currently has a joint-venture with major Aussie gold producer Evolution Mining. We can take a closer look at Lake Austin North below:

(Source: Company Presentation)

The Lake Austin North gold discovery lies roughly 3 kilometers north of the Break of Day deposit, with the A-Zone being the most exciting target to date. Musgrave signed a joint-venture agreement with Evolution Mining last year on this area, with Evolution being able to secure a 75% interest in the project if it spends A$18 million over five years, and a minimum of A$4 million in the first two years. The A-Zone target has significant bulk tonnage potential with a 3-kilometer strike length with widths of up to 300 meters and several impressive intercepts coming out of the project to date. Hole 18-MODD-008 intersected 242 meters at 1.0 grams per tonne gold, while hole-18-MORC-039 and 18-MORC-057 intersected 84 meters at 1.70 grams per tonne gold and 94 meters at 2.20 grams per tonne, respectively. These are exceptional intercepts that suggest the potential for a more than one million-ounce resource here, and Thursday's news release has confirmed that the gold anomaly has been traced over a more than 5-kilometer strike length.

(Source: Company Presentation)

Therefore, while the Southern Zone, which is comprised of Lena, Break of Day, and the new Starlight link-lode discovery is one of the most exciting developments to date in the sector, Musgrave has further upside to the north with Evolution funding exploration at Lake Austin North. Assuming there is a significant resource defined here and Evolution takes 75% of the project, this would leave Musgrave with a 25% interest in an abundant resource that it paid next to nothing to delineate. Therefore, the structure of the deal with Evolution was a wise move by the company as it allows them to focus their capital at the higher-grade Southern Zone, while Evolution pays to build a resource in the relatively lower-grade bulk tonnage Lake Austin to the north.

(Source: Company Presentation)

While it's too early to proclaim Musgrave a takeover target, the company is certainly looking like they could become one if we continue to see results like we saw earlier this month from Starlight. With several gold producers surrounding Musgrave and Evolution holding 4% of Musgrave and Westgold holding close to 15%, an acquisition here would make sense, especially given the proximity of Musgrave's resources to its neighbor's mills. The next significant catalyst for Musgrave will be a resource update at Break of Day in Q3, which should include much of the recent drilling at Starlight. If the company can prove a 1 million ounce high-grade resource here in the next 12 months, I believe that Musgrave would become one of the top-takeover targets on the ASX in the gold space. Based on the new Starlight discovery and a very reasonable A$110 million market cap for Musgrave, I believe the company is a name investors should keep a close eye on going forward. If we were to see the stock pullback below A$0.19, I believe this would be a low-risk area to start a position in the stock.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.